Gujarat Gas - Blockbuster Q2 driven by margin jump; volumes up YoY - ICICI Securities

Gujarat Gas' (GGL) H1 and Q2FY21 recurring EPS was up 14-117% YoY, driven mainly by jump in EBITDA margin. Q2 volumes are up 5% YoY and 138% QoQ from lows of Q1 hit by lockdown. GGL's current volumes of ~10.5mmscmd are 7-11% higher than in Q2FY21 and FY20. Q3 EBITDA margin is likely to plunge from the lofty levels of Q2 given 9% cut in Morbi prices in Sep and surge in spot LNG prices. However, we still see upside to our FY21E margin. We have raised our FY21-FY22E volumes and FY21E margin, which has led to 26-7% upgrade in FY21-FY22E EPS (up 9-19% YoY) and 11% rise in target price to Rs349 (16% upside). Implementation of NGT order of Jul'20 may mean upside to our FY22E volumes. Given the breakout Q2, we upgrade GGL to BUY from ADD.

- Margin surge & 5% YoY volume rise drive 2.2x YoY jump in Q2 EPS: Q2FY21 recurring EPS is up 117% YoY, driven mainly by 88% YoY rise in EBITDA margin to record high of Rs8.1/scm. Q2 volumes at 9.85mmscmd are up 5% YoY, despite 13% YoY fall in CNG and 40% YoY fall in commercial volumes, driven mainly by 9% (0.7mmscmd) YoY rise in industrial volumes to record high of 7.9mmscmd. H1FY21 recurring EPS was up 14% YoY, despite 75% YoY fall in Q1, due to strong Q2.

- Raise FY21-22E EPS & target price: EBITDA margin of Rs7.2/scm in H1FY21 means we expect FY21E margin to be at least Rs5.5/scm (16% up YoY) even after factoring margin fall likely in Q3 from 9% price cut in Morbi in Sep and QoQ surge in spot LNG prices. FY21E margin may be as high as Rs6.25/scm. FY21E volume would be 8.8mmscmd if current volumes of ~10.5mmscmd sustain throughout H2. The company expects FY21E exit volumes at 11mmscmd. However, we are being conservative in upgrading FY21-FY22E volumes by 6% to 8.6-10.3mmscmd and FY21E margin by 9% to Rs5.5/scm. This has led to upgrade in FY21-FY22E EPS by 26-7% and target price by 11% to Rs349/share (16% upside). Higher FY21E margin and FY21-FY22E volumes than now assumed are not ruled out.

Shares of Gujarat Gas Ltd was last trading in BSE at Rs.301.7 as compared to the previous close of Rs. 296.2. The total number of shares traded during the day was 11995 in over 619 trades.

The stock hit an intraday high of Rs. 302.8 and intraday low of 297.5. The net turnover during the day was Rs. 3613818.

Source : Equity Bulls

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